3 ways trusts can help, even if you’re not rich
Broadly speaking, I like to think of a trust as a type of container designed to hold your assets—whether that’s investments, real estate, or even a private business. With the guidance of a lawyer and a financial advisor, you can establish specific rules for how the assets in your trust will be managed and distributed, either during your lifetime or after you pass away. You also have the flexibility to name beneficiaries of your choosing, ensuring your assets go exactly where you want them to.
One of the most practical uses of a trust is planning for the unexpected. For instance, you can set up a trust to manage your assets in the event that you or a loved one becomes incapacitated. This is an increasingly valid concern given longer life spans and the prevalence of conditions like Alzheimer’s, which often require costly long-term care. Additionally, trusts are a powerful tool for ensuring that your money is distributed according to your wishes after you’re gone. Here are three key benefits to consider when setting up a trust:
1. More Control Over Your Assets
A trust gives you the ability to establish specific rules or conditions about when and how your beneficiaries will receive their inheritance. For example, if you want to ensure that your son focuses on completing a professional degree or pursuing a career instead of spending his inheritance frivolously, you can set milestones or age requirements. For instance, you could stipulate that the funds only become available after he graduates from law school or turns 30.
Trusts can also help you achieve philanthropic goals or improve tax efficiency. By setting up a charitable trust, you can support causes you care about while also providing an income stream for yourself or your heirs. This approach can help minimize gift taxes or other potential tax liabilities, making it a win-win for both your legacy and your financial planning.
2. A Measure of Protection
Trusts offer a layer of protection for your loved ones and their inheritance. For example, they can ensure that your children, grandchildren, or other beneficiaries still receive their inheritance if you divorce or remarry. Additionally, trusts can shield assets if you or your heirs work in professions with a high risk of litigation.
Another practical use is to make a trust the beneficiary of your life insurance policy—or to place the policy itself within the trust. This allows you to dictate how the proceeds are spent, offering an extra level of protection for your heirs. Trusts can also be used to keep a family business intact, ensuring it stays within the family, or to provide for a child with special healthcare needs, giving you peace of mind that their future is secure.
3. Investment Guidance
One of the most overlooked benefits of a trust is the ability to designate a professional money manager. This is especially helpful if your loved ones are unable to handle investments, family property, or a business on their own. For example, if your heirs are too young or inexperienced to manage an inheritance, the financial stewardship you put in place through the trust can help protect them from costly mistakes.
For beneficiaries, having a professional oversee the trust’s assets can ease the transition to managing wealth and provide peace of mind for everyone involved. It’s a way to ensure that your legacy is not only preserved but also managed responsibly for future generations.
Final Thoughts
A trust is just one piece of a larger plan you can put in place to secure your legacy. The beauty of trusts is that they are flexible and can be adjusted over time to meet your changing needs and goals. Whether you’re looking to protect your assets, provide for loved ones, or achieve charitable objectives, a trust can be a powerful tool to help you accomplish your vision.
